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Let the floodgates open

The latest interest rate cut by the Reserve Bank will free up many billions of rand, which will help offset the impact of the recession and stimulate the economy. This is the word from Brian Falconer, MD of Colliers International Residential, South Africa''s fastest-growing real estate group.

"For every million rand bonded, a homeowner will save R704.90 a month relative to their previous repayments, given the new prime rate of 12 percemt" says Falconer. "In total, since the Reserve Bank changed its approach and began cutting interest rates, we have seen a 350 basis points cut, which for every million rand held in a mortgage has returned R2 527,95 into the back pocket of a bondholder."

Given that many thousands of people have been living on the edge of their creditworthiness, this latest reduction in interest rates, as announced by the Monetary Policy Committee of the South African Reserve Bank, should reduce the number of home repossessions and, hopefully, increase the number of people who qualify for new home loans.

"Property prices have declined consistently over the last 18 months," says Falconer, "and there are some exceptional bargains on the market, with prices we won''t see again for years. We are either at the bottom of the market or very close to it, so now is the time, more than ever, to re-enter the property market. We call on all the banks to begin relaxing their lending criteria, as this will have the effect of stimulating the market."

South Africa is not the only country to be cutting interest rates: many countries have shaved interest rates as low as possible to try and stimulate the economy. Positive indicators that the Reserve Bank has further latitude with the interest rate include slowing inflation, except for food inflation, a declining oil price, and a strengthening rand, which has gained against all major currencies in recent weeks.

In addition, signs of a global recovery continue to gain pace, as financial institutions begin to report profits, in some cases their highest ever, and the Far East begins to stimulate demand with orders for commodities.

"However, the property market remains sluggish," says Falconer, "and this will remain the case until the four main banks, relax their current, unyielding approach."

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